The ABS recently released property price data for the December 2019 quarter. This is obviously before the Coronavirus (CV) and so may not fully reflect current dynamics.
However, it pointed to a continued recovery in property prices, so ending the deepest downturn in some time.
What turned it around?
- Two fresh interest rate cuts in 2019.
- Fiscal help (Federal Government’s First Home Loan Deposit Scheme).
Amid the continued structural driver of strong population growth in land-constrained cities. I recall my late grandfather talking of a teacher friend of his who bought at 1 Toorak Avenue way back when (good luck doing that now).
By city, a pretty remarkable turnaround in year-to growth in Sydney and Melbourne in particular. Darwin – currently experiencing a contracting population and continued slump post the Ichthys LNG project – remains mired in pain. Elsewhere, momentum is becoming more positive.
Yet that’s before the CV situation. Yet, there’s good points and bad points for property prices from it.
- Unfortunately unemployment looks set to rise, meaning many will struggle to pay their mortgages. At an extreme, that could lead to forced selling/repossessions.
- Wealth loss through equity markets (which have experienced a savage sell-off) could flow through into ability to buy real estate.
- A loss of investor confidence (frayed nerves), leading to lower levels of animal spirits in the market.
- The RBA has cut interest rates a further two times, to just 0.25%. The cost of money is very cheap, which makes servicing easier.
- To the extent the CV affects supply chains and home builders, there could be a drop-off in building activity (new supply) while population growth remains robust. Even before CV, there were signs of a tightening demand/supply balance again. This will take some time to assess. For reference this how the building cycle has looked recently:
Note: completions, commencements to Sep-19, approvals to Dec-19.
- Flight to safety: to many who may have watched some of their shares dive by 40, 50, 60, 70% in a matter of weeks, good old bricks and mortar may be more attractive to investors.
How it plays out will be interesting. Personally I’m still positive on the property market (in the right markets and for the right types of stock).
Stay safe out there!